Gavin Newsom proposes to increase California film and TV tax credit

Gov. Gavin Newsom unveiled a proposal Sunday to more than double the annual amount of money allocated to California’s film and TV tax credit program as Hollywood struggles to compete with other production hubs dangling lofty incentives.

The governor declared his intent to expand the annual tax credit to $750 million, up from its current total of $330 million, which would make California the top state for capped film incentive programs, surpassing even New York. If approved by the Legislature, the increase could take effect as early as July 2025 and span five years.

Newsom announced his plans during a news conference Sunday at Raleigh Studios in Hollywood. He was joined by Los Angeles Mayor Karen Bass, legislative leaders and union officials, including representatives of the Directors Guild of America and the International Alliance of Theatrical Stage Employees.

Standing in front of a lectern with a blue sign reading “Lights, Camera, Jobs,” Newsom said the state “needed to make a statement and to do something that was meaningful.”

“We’re in a position where we can afford this, and we need to do this,” he said during the news conference. “It’s about recognizing the world we invented is now competing against us.”

The announcement comes as Newsom and other elected officials have been under increasing pressure to act as Hollywood has struggled to rebound since the pandemic and last year’s dual strikes by writers and actors.

Productions have increasingly opted to film in other states because of higher tax incentives, putting a damper on California’s signature film and TV industry. Underscoring the state’s competitive disadvantage, about 71% of projects that were rejected by California’s film and TV tax credit program chose to film out of state, the governor’s office said.

Bass hailed the proposed measure, saying, “We have to do everything we can to strengthen and protect one of our foundational pillars in Los Angeles.”

California’s film and TV tax credit program was established in 2009 as a way to prevent film and TV production from fleeing to other states. Back then, the credit was restricted to $100 million per year.

Five years later, the roof was raised to $330 million a year, awarding studios tax credits of up to 25% to offset qualified production costs such as set construction, stunt equipment and wages for crew members. The credit can be applied to any tax liability companies have in California.

In 2023, Newsom extended that version of the program for another five years and added a “refundable” feature entitling studios to cash payments from the state when their credits exceed their tax bills.

Although Newsom’s Sunday proposal would represent a substantial increase in funding, it doesn’t remove other restrictions in the state’s incentive program, including a provision that excludes the salaries of actors and other above-the-line costs that are a big portion of film and TV budgets. Georgia and other rivals do not have such restrictions.

But such a move is considered politically untenable in California, where the film incentive program has faced opposition from critics who argue that subsidizing entertainment comes at the expense of other worthy causes, such as education and healthcare.

Newsom, whose proposal will appear in his January budget, said the state has had “good revenue news” and could afford to finance the extra cost of the program.

“I’m looking at other priorities and looking at areas where we want to continue to be more efficient and more effective,” Newsom told reporters at the event. “I don’t want to pull back from that, but we can certainly provide the space for this.”

Members of Los Angeles’ entertainment community have recently been urging the government to pump more funds into the film and TV tax credit program in order to curb so-called runaway production and stimulate jobs.

As previously reported by The Times, industry insiders and experts overwhelmingly agree that relatively weak incentives are the main reason California is losing significant ground to Georgia, New York, Canada, the United Kingdom and other filming hot spots around the world.

New York’s film and TV tax credit program, for example, is capped at $700 million; and Georgia — a popular production destination for Marvel and Netflix — doesn’t have a limit at all.

“I believe the best filmmakers in the world are right here in Los Angeles, but it’s being outsourced because of the tax credits,” Mike DeLorenzo, president of Santa Clarita Studios, told The Times last month.

The sluggish activity in Southern California has been fueled by other factors as well, notably an overall pullback in production that reached a peak during the so-called streaming wars and cost-cutting by the major media companies.

Earlier this month, Los Angeles film permit office FilmLA reported that production levels in the area fell by 5% in the third quarter of 2024 compared with the same stretch in 2023, when scripted production came to a near standstill because of the Hollywood strikes.

Times staff writer Stacy Perman contributed to this report.